This blog is specifically for the person who is self-employed and doesn’t know how you pay the federal government  the income taxes owed to avoid an underpayment penalty.

So you are now an independent contractor and receive a 1099MISC for your freelance work.  This works to your “employer’s” advantage since he doesn’t have to withhold taxes for you, pay worker’s compensation insurance or unemployment insurance (which are the bad things for you, so now you are responsible for the taxes and have no unemployment or workers comp if you are injured doing work or your contract gets terminated).  You now have to pay income, social security and medicare taxes on the 1099 income, but can reduce that income by any expenses you had to pay that are work related (since they will not be reimbursed by anyone.)  To avoid the underpayment penalty, you have to pay taxes during the year equal to last years tax you owed or 90% of this year’s tax (during the year you would have to estimate as you go.)

Figure out the lesser of the two tax amounts, 100% of last year or 90% of this year (remember to include social security (11.45% of your net income up to $118,500) and medicare (2.7% of your net income, no income limits) to this years tax).  Pay the taxes in four installments on form 1040ES by April 15 (this one is late this year if you haven’t paid, so pay asap), June 15, September 15 and January 15.  This will at least make sure you don’t have a big tax bill next April.  

You would also have to pay any state taxes, but since each state is different, best to look at your state tax website for more info.

  For financial,  accounting and tax musings,